Once again geopolitical events captured the attention of investors. Favorable earnings were forgotten Thursday while all eyes were on the Malaysian plane crash in Ukraine and the continuing violence between Israel and the Palestinians in the Gaza Strip. However, the search for safe havens abated Friday and equities rebounded with most indexes ending the week on a positive note.
The sharp swings were a wake-up call for traders after weeks of calm, with worries growing that the downing of the jet may escalate tensions between Russia and the West. While the crisis in Gaza sent oil higher on concern of production risks in the Middle East.
Both the Bank of Japan and Reserve Bank of Australia released minutes of meetings held in June and early July respectively. Both chose to maintain the status quo as far as policy is concerned and gave so signs that a change in policy might be forthcoming. The Banks of Canada and Japan held monetary policy meetings during the week — both left policy unchanged. The BoC kept its key interest rate at 1.0 percent where it has been since September 2010. The Bank of Japan left its interest range at zero to 0.1 percent. It also left its financial asset purchases unchanged, with the goal of increasing the monetary base at an annual pace of about ¥60 trillion to ¥70 trillion yen. The BoJ also maintained its inflation target at 2 percent but sees a shortfall. It projects the consumer price index to be about 1.25 percent for some time.
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|
2013 |
2014 |
% Change |
|
Index |
31-Dec |
July 11 |
July 14 |
Week |
2014 |
Asia/Pacific |
|
|
|
|
|
|
Australia |
All Ordinaries |
5353.1 |
5474.6 |
5519.2 |
0.8% |
3.1% |
Japan |
Nikkei 225 |
16291.3 |
15164.0 |
15215.7 |
0.3% |
-6.6% |
Hong Kong |
Hang Seng |
23306.4 |
23233.5 |
23454.8 |
1.0% |
0.6% |
S. Korea |
Kospi |
2011.3 |
1988.7 |
2019.4 |
1.5% |
0.4% |
Singapore |
STI |
3167.4 |
3293.7 |
3310.5 |
0.5% |
4.5% |
China |
Shanghai Composite |
2116.0 |
2047.0 |
2059.1 |
0.6% |
-2.7% |
|
|
|
|
|
|
|
India |
Sensex 30 |
21170.7 |
25024.4 |
25641.6 |
2.5% |
21.1% |
Indonesia |
Jakarta Composite |
4274.2 |
5032.6 |
5087.0 |
1.1% |
19.0% |
Malaysia |
KLCI |
1867.0 |
1883.2 |
1873.0 |
-0.5% |
0.3% |
Philippines |
PSEi |
5889.8 |
6901.1 |
6853.07 |
-0.7% |
16.4% |
Taiwan |
Taiex |
8611.5 |
9495.8 |
9401.0 |
-1.0% |
9.2% |
Thailand |
SET |
1298.7 |
1518.0 |
1533.4 |
1.0% |
18.1% |
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
UK |
FTSE 100 |
6749.1 |
6690.2 |
6749.5 |
0.9% |
0.0% |
France |
CAC |
4296.0 |
4316.5 |
4335.3 |
0.4% |
0.9% |
Germany |
XETRA DAX |
9552.2 |
9666.3 |
9720.0 |
0.6% |
1.8% |
Italy |
FTSE MIB |
18967.7 |
20614.9 |
20737.1 |
0.6% |
9.3% |
Spain |
IBEX 35 |
9916.7 |
10538.8 |
10527.0 |
-0.1% |
6.2% |
Sweden |
OMX Stockholm 30 |
1333.0 |
1362.4 |
1387.4 |
1.8% |
4.1% |
Switzerland |
SMI |
8203.0 |
8468.5 |
8511.4 |
0.5% |
3.8% |
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
United States |
Dow |
16576.7 |
16943.8 |
17100.2 |
0.9% |
3.2% |
|
NASDAQ |
4176.6 |
4415.5 |
4432.2 |
0.4% |
6.1% |
|
S&P 500 |
1848.4 |
1967.6 |
1978.2 |
0.5% |
7.0% |
Canada |
S&P/TSX Comp. |
13621.6 |
15125.5 |
15266.6 |
0.9% |
12.1% |
Mexico |
Bolsa |
42727.1 |
43481.8 |
44278.9 |
1.8% |
3.6% |
Equities gyrated between positive and negative during the week on geopolitical concerns. However, the indexes were positive save the IBEX and that slipped only 0.1 percent at week's end. The run-up in tensions surrounding Ukraine and Israel jolted investors. However, confidence that these escalations will remain contained limited the rush to safe haven assets. Typical safe harbor assets such as gold, U.S. government bonds and the yen rallied Thursday while stocks retreated. But the shift into what appear to be the safest assets at times of unrest did not extend into Friday. On the week, the FTSE was up 0.9 percent, the CAC gained 0.4 percent, the DAX advanced 0.6 percent and the SMI added 0.5 percent.
Equities dropped on Thursday after a Malaysian airliner crashed in an area in territory held by Russian backed rebels in Ukraine. Before the crash, the U.S. and European Union imposed tougher sanctions on Russia. The sanctions target major banks and energy companies. However, some traders believe corporate takeover activity, and the fact that equities offer better returns than bonds or cash, should push stock markets higher.
It was a light week for economic data. However, June UK labour force data indicate that conditions continue to improve on both measures of unemployment — the claimant count and the ILO measure. Final harmonized index of consumer prices verified the flash estimate of inflation — June HICP was up only 0.5 percent on the year.
Most equity indexes were up last week despite the geopolitical events that sent investors scurrying to safe havens. Markets across Asia were jolted Friday after a Malaysia Airlines plane was shot down in Ukraine on Thursday. Investors piled into the safety of the yen, pushing Japanese stocks lower. Only indexes in Malaysia, Philippines and Taiwan were down on the week. Even though the Nikkei was down three of five days, the index added 0.3 percent.
Elsewhere on Friday, the downward moves in equities were less extreme, with the declines less than or in line with the overnight drop in U.S. markets. After an initial shock at the start of trading, many markets pared their earlier losses to trade close to the breakeven mark. Some analysts argue that markets have successfully shaken off other geopolitical events this year, such as Russia's annexation of Crimea, and that the impact of the latest developments may not be long lasting. But others warn that the geopolitical news is not helpful for the investment climate.
Earlier in the week, China released its second quarter gross domestic product data. The economy grew at a slightly faster pace — increasing 7.5 percent when compared with the same quarter a year ago, up from 7.4 percent in the first quarter and beating forecasts for a 7.4 percent increase. June industrial production climbed 9.2 percent on the year while retail sales gained an annual 12.4 percent, in line with estimates. The Shanghai Composite was up 0.6 percent on the week and the Hang Seng added 1.0 percent.
The U.S. dollar advanced against the euro, Swiss franc and the pound sterling last week. However, it was unchanged against the yen and the Canadian dollar and was down against the Australian dollar. Comments from Federal Reserve officials including Chair Janet Yellen implied that the federal funds rate may have to be increased from its current range of zero to 0.25 percent. Ms Yellen told Congress borrowing costs may increase sooner than markets expect should the labor market continue to improve faster than anticipated. St. Louis Fed President James Bullard said in a speech that the Fed may have to raise interest rates more quickly than planned as unemployment falls and inflation quickens.
On Friday, the yen weakened as demand for safe haven assets waned after a surge on Thursday that pushed the Japanese currency to the strongest level against the euro in five months. Earlier, the yen strengthened to a five month high against the euro after a Malaysian airliner was shot down over eastern Ukraine near its border with Russia, boosting safe haven assets.
The pound rose to the strongest level in 22 months against the euro after UK unemployment slid to the lowest since 2008 and added to signs the economy can withstand higher interest rates. Unemployment slid to 6.5 percent in the three months through May, from 6.6 percent in the period ending April. Jobless claims fell more than forecast. However, wage growth in the period slowed to 0.3 percent, the lowest since May 2009, from 0.8 percent in April. Pay increases excluding bonus payments fell to the lowest level since records began in 2001.
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|
2013 |
2014 |
% Change |
|
|
Dec 31 |
July 11 |
July 18 |
Week |
2014 |
U.S. $ per currency |
|
|
|
|
|
|
Australia |
A$ |
0.893 |
0.939 |
0.940 |
0.1% |
5.3% |
New Zealand |
NZ$ |
0.823 |
0.881 |
0.869 |
-1.4% |
5.6% |
Canada |
C$ |
0.942 |
0.932 |
0.931 |
0.0% |
-1.1% |
Eurozone |
euro (€) |
1.376 |
1.361 |
1.353 |
-0.6% |
-1.7% |
UK |
pound sterling (£) |
1.656 |
1.712 |
1.709 |
-0.2% |
3.2% |
|
|
|
|
|
|
|
Currency per U.S. $ |
|
|
|
|
|
|
China |
yuan |
6.054 |
6.204 |
6.208 |
-0.1% |
-2.5% |
Hong Kong |
HK$* |
7.754 |
7.750 |
7.751 |
0.0% |
0.0% |
India |
rupee |
61.800 |
59.938 |
60.288 |
-0.6% |
2.5% |
Japan |
yen |
105.310 |
101.330 |
101.350 |
0.0% |
3.9% |
Malaysia |
ringgit |
3.276 |
3.186 |
3.183 |
0.1% |
2.9% |
Singapore |
Singapore $ |
1.262 |
1.241 |
1.241 |
0.0% |
1.7% |
South Korea |
won |
1049.800 |
1018.920 |
1029.320 |
-1.0% |
2.0% |
Taiwan |
Taiwan $ |
29.807 |
29.962 |
30.011 |
-0.2% |
-0.7% |
Thailand |
baht |
32.720 |
32.146 |
32.146 |
0.0% |
1.8% |
Switzerland |
Swiss franc |
0.892 |
0.892 |
0.898 |
-0.7% |
-0.7% |
*Pegged to U.S. dollar |
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Source: Bloomberg |
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June final harmonized index of consumer prices edged up 0.1 percent on the month and was up 0.5 percent from the same month a year ago. Core prices (excluding food, alcohol, tobacco & energy) similarly matched their initial print with a 0.8 percent annual increase, up just a tick from their final May posting. The other two underlying inflation gauges (excluding seasonal food & energy and excluding unprocessed food & energy) held steady at their 0.8 percent yearly rates recorded in the final May report. Energy inflation was up 0.1 percent but food, alcohol & tobacco dropped 0.3 percentage points to minus 0.2 percent. Non-energy industrial goods prices were down 0.1 percent on the year, a tick short of their May pace, but service sector inflation climbed 0.2 percentage points to 1.3 percent. The region's inflation rate would have been softer but for a 0.4 percentage point jump to 1.0 percent in Germany. Indeed, Greece (down 1.5 percent) and Portugal (down 0.2 percent) have returned annual declines in prices for at least four consecutive months now and Slovakia (down 0.1 percent) also dipped back below zero.
July ZEW expectations measure was trimmed by nearly 3 points to 27.1, its seventh consecutive monthly declined and its lowest reading since December 2012. At the same time, the current conditions gauge declined almost 6 points to 61.8, its first drop since November last year and a 3-month low. The readings are in keeping with some further slippage in the July Ifo survey and do not bode well for next week's flash PMIs. The new levels of both indices probably remain firm enough to suggest that the German economy is still in expansion mode but they clearly provide further reason for supposing that momentum has slowed, possibly quite markedly, from a very robust first quarter.
June consumer prices were up 0.2 percent on the month and lifted the annual inflation rate by 0.4 percentage points to 1.9 percent, its highest level since January. The principal boost to the yearly rate came from clothing & footwear where a 0.6 percent monthly increase in prices compared with a 1.9 percent decline a year ago. The other main source of upward pressure came from transport where charges climbed 0.6 percent from May or 0.5 percentage points more than the same period in 2013. Furniture, household equipment & maintenance (up 0.2 percent on the month from minus 0.5 percent a year ago) also added to the annual inflation rate as did food and non-alcoholic beverages. Core consumer prices also advanced 0.2 percent from mid-quarter to leave an underlying yearly inflation rate of 2.0 percent after 1.5 percent in May.
June producer output prices were down 0.2 percent and reduced annual factory gate inflation from 0.5 percent to 0.2 percent. At the same time, input costs dropped 0.8 percent after a revised 0.3 percent monthly increase in mid-quarter to lower their yearly rate from minus 3.8 percent to minus 4.4 percent. Within the output price basket, monthly declines were relatively widespread, the steepest occurring in food products (0.5 percent) and chemicals & pharmaceuticals (0.4 percent). The only increase was in clothing, textiles & leather (0.5 percent). Core factory gate prices were flat on the month and up 1.0 percent on the year for the third report in succession. The monthly drop in input costs was led by a 4.9 percent decline in home food materials, compounded by a 2.7 percent slide in fuel and a 1.0 percent decrease in imported food materials. The only increases of any note were in crude oil (0.9 percent) and imported parts & equipment (0.7 percent).
June claimant count unemployment dropped a sizeable 36,300 on the month, its steepest drop since last November, and that following a larger revised 32,800 decline in May. The jobless rate on this measure was down another 0.1 percentage point to 3.1 percent and has now fallen every month since April 2013. At 1.044 million, the number of claimants in June stood at its lowest level since October 2008. The ILO data paint a similar picture with joblessness on this definition shrinking 121,000 during the three months to May. This was enough to shave another tick off its unemployment rate to 6.5 percent and incorporated a single month figure of 6.2 percent for May, its lowest reading since September 2008. Employment was up 254,000 to hit a new record high of 30.643 million. Headline average earnings growth in May was only 0.3 percent,
Second quarter gross domestic product was up 7.5 percent from the same quarter a year ago. Analysts expected GDP to grow 7.4 percent. For the first half of 2014, GDP expanded 7.4 percent on the year. GDP was up 2.0 percent on the quarter after increasing a revised 1.5 percent in the first quarter. The pickup in GDP suggests that growth in China has stabilized after a slowdown earlier this year, thanks to the governments accommodative polices.
June industrial production was up 9.2 percent from a year ago, above expectations of an increase of 9.0 percent. For the first half of the year, output was up 8.8 percent from the same months a year ago. On the month, output was up 0.77 percent after increasing 0.72 percent in May. Output expanded in all major categories including transport equipment, machinery, communication and steel products. Motor vehicles, chemicals, non-metal minerals, ferrous metals and general equipment were among the categories where output was less than in May.
June retail sales were up 12.4 percent on the year after increasing 12.5 percent in May. For the six months in 2014, sales were up 12.1 percent from the same months a year ago. On the month, retail sales were 0.96 percent higher. Urban retail sales were up 12.3 percent for a second month while rural sales were 13.4 percent higher after increasing 13.9 percent last time. Communications equipment jumped 33.9 percent after increasing 25.3 percent the month before. Building & decoration sales increased 17.0 percent on the year after 16.8 percent in May. Furniture was up 15.6 percent after 15.1 percent the month before. Home appliances improved to a gain of 10.7 percent after increasing only 6.6 percent in May and 2.9 percent in April.
June consumer price index edged up 0.1 percent on the month and was 2.4 percent higher when compared with a year ago. It was the fourth consecutive increase on the year and the fastest pace since February 2012. However, underlying developments were rather softer. Excluding food and energy prices, the CPI was only flat and up a modest 1.6 percent on the year after a 1.5 percent increase last time. Meanwhile, the BoC's preferred gauge which excludes eight volatile items slipped a monthly 0.1 percent to yield an annual 1.8 percent rate. Seasonal factors are quite strongly negative in June and adjusted for such effects the CPI was up 0.3 percent on the month. The core indexes were similarly affected — the adjusted ex-food and energy index was up 0.3 percent from May and the BoC measure 0.2 percent firmer. Within the adjusted CPI basket the main boost to the headline index came from transportation where charges were up a monthly 0.8 percent. There were also above average gains in food (0.5 percent), clothing & footwear (0.5 percent) and in household operations, furnishings & equipment (0.4 percent). Elsewhere increases were more restrained and there were declines in both shelter (0.3 percent) and health & personal care (0.1 percent).
Equities mostly advanced last week despite disturbing geopolitical events. With a light calendar of new economic news, investors had been focused on U.S. earnings reports until Thursday's flight to safety. However, relative calm was restored quickly on Friday.
Besides the continuing flow of earnings reports, investors will focus on July flash PMIs, due on Thursday. They will be eager to check the pulse of the manufacturing and service sectors in July. And the UK becomes the first Group of Seven to release second quarter growth data.
Central Bank activities |
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July 24 |
New Zealand |
Reserve Bank of New Zealand Monetary Policy Announcement |
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The following indicators will be released this week... |
Europe |
|
|
July 21 |
Germany |
Producer Price Index (June) |
July 24 |
Eurozone |
Manufacturing, Services & Composite PMI (flash, July) |
|
Germany |
Manufacturing, Services & Composite PMI (flash, July) |
|
France |
Manufacturing, Services & Composite PMI (flash, July) |
|
UK |
Retail Sales (June) |
July 25 |
Eurozone |
M3 Money Supply (June) |
|
Germany |
Ifo Survey (July) |
|
UK |
Gross Domestic Product (Q2.2014 first estimate) |
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|
|
Asia/Pacific |
|
|
July 23 |
Australia |
Consumer Price Index (Q2.2014) |
July 24 |
Japan |
Merchandise Trade Balance (June) |
|
China |
Manufacturing PMI (July flash) |
|
Japan |
Manufacturing PMI (July flash) |
July 25 |
Japan |
Consumer Price Index (June) |
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|
Americas |
|
|
July 23 |
Canada |
Retail Sales (May) |
Anne D Picker is the author of International Economic Indicators and Central Banks.
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